Russia and Modernization: The United States versus China
By John Yi
September 29, 2011
The word “modernization” has become ubiquitous in almost all major government policies and initiatives since the 2009 release of Russian president Dmitry Medvedev’s “Go Russia!” policy manifesto, where he called for the modernization of Russia’s economy and society. This has been especially evident in Russian foreign policy, which has been seeking to attract foreign investment in new high tech sectors of the Russian economy in order to further the cause of modernization.
In the search for these foreign investments, Russia has two likely but differing partners: the United States and China. Both show a willingness to invest in Moscow’s modernization but they present drastically alternate opportunities for Russia. On one hand, U.S.-Russia cooperation has followed the Kremlin’s version of modernization: investment in new high-tech industries and projects, such as the Skolkovo innovation center, Russia’s attempt to create and nurture its own version of Silicon Valley on the outskirts of Moscow. Meanwhile, on the other hand, China-Russia cooperation on modernization has been more general, focusing less on high-tech and new industries but more on increasing trade and general investment between the two countries. An especially high priority for Moscow is to diversify economic relations with China, which are dominated by the energy trade.
President Medvedev’s official outline of modernization for Russia consists of an ambitious list of five major points of innovation and technology development: energy efficiency and new fuels, nuclear technology, medicine and pharmaceuticals, information technology, and space and telecommunications. Considering American capabilities in these areas and the U.S.-Russia “Reset” diplomacy, the United States was perceived as a natural partner. However, U.S. cooperation with Russia along these lines might be more what Moscow wants, rather than what it needs.
In the past few years, major American companies such as Boeing, Cisco, Microsoft, Intel, and GE have all pledged support to the Skolkovo innovation city, though with varying degrees of involvement. For example, Cisco has made a commitment to invest roughly $1 billion in Skolkovo-based projects, whereas companies like Google and Intel have merely agreed for their top executives to sit on Skolkovo’s advisory board. In addition to commercial exchange, U.S.-Russia cooperation on modernization has also become a part of the U.S.-Russia Bilateral Presidential Commission, where a number of the working groups cover all five points of Medvedev’s modernization plan.
U.S.-Russia high-tech economic cooperation has made significant progress, but it is based on relatively underdeveloped sectors of the Russian economy that will take years to become internationally competitive. Also, projects like Skolkovo are isolated examples of a drive for innovation that are not necessarily reflective of the Russian economy as a whole. For example, Skolkovo will have a more streamlined bureaucracy and tax system in order to stimulate investment there, but this will not have any immediate effect on the corruption-plagued bureaucratic and tax regimes found in the rest of Russia. Though U.S. investments in Russia’s modernization may have strong symbolic value and serve as confidence building measures, the sustainability and returns of these investments are still not very clear.
In contrast, Chinese investment opportunities in Russia—though less aligned with President Medvedev’s high-tech wish list—may constitute the very modernization program that Russia needs. China’s know-how from its own successful modernization program can lay the foundation for a strong and sustainable partnership between Chinese and Russian firms. China’s experience expanding its massive high-speed rail system can also be crucial in assisting Moscow’s ambition to modernize and expand its aging rail network. Furthermore, as Russia’s largest trading partner in energy resources, China is a vital ally in the modernization of Russia’s oil and gas industry. Finally, China can also assist Russia in the development of its sparsely populated Far East, something the Kremlin has linked closely with modernization and the high-tech Asia-Pacific market. Though many in Moscow are apprehensive about the growing Chinese influence in this region, cooperation with Beijing and other East Asian partners can be instrumental in developing the Russian Far East in a way that is consistent with the Kremlin’s designs and aspirations.
It the past year, it seems that Moscow has noticed these different approaches to its modernization. Despite success stories of drawing U.S. investment in projects like Skolkovo, there are indications that Russia is looking eastward towards China. In 2011 alone, Moscow has made a number of overtures to Beijing to cooperate on projects such as high-speed rail systems and high-speed internet satellite systems. In nearly all of these projects the key word “modernization” is used again and again. Even the 2012 APEC Summit, which will be hosted by Russia, has been given the theme “Cooperation for Modernization.” Furthermore, Moscow is also looking beyond China and at other neighbors in East Asia, such as South Korea.
Modernization through a partnership with China may not usher in new innovative industries listed under President Medvedev’s “Go Russia” speech, as perhaps modernization with the U.S. would. However, cooperation with Beijing and Chinese firms represents significant and tangible opportunities in modernizing many parts of Russia’s outdated industries and national infrastructure. Also, it is worth noting that China currently has more capital available for investing while the United States struggles with a seriously troubled domestic economic and political situation.
Nevertheless, the U.S. and the West still enjoy much of the Kremlin’s attention regarding its efforts in modernization. However, with Russia also looking east and seeking closer economic ties with China, there are implications regarding U.S. foreign policy in this region. In relations often dominated by security issues, such as missile defense or nuclear disarmament, the recent U.S.-Russia commercial partnerships have been a welcomed reprieve for both parties, especially in the efforts of resuscitating the “Reset” diplomacy. However, unless the United States and US companies do more, opportunities for meaningful engagement with Russia may soon be lost to a more ambitious and financially stable China.
China’s growing influence in Russia’s modernization effort will have an impact on U.S.-Russia relations. Modernization is and will continue to be the focus of the Kremlin, and the U.S. should intensify its efforts to engage Russia economically and politically if it does not want to see China gain disproportionate influence and economic benefits from cooperation with Russia.
John K. Yi is an Alfa Fellow currently living in Moscow, Russia. He received his M.A. in Eurasian, Russian, and Eastern European Studies at Georgetown University, focusing on Russian foreign policy in East Asia and in the Six Party Talks.
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